Wednesday 4th May 2016
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New Zealand Refining hopes to apply for resource consents by the end of this year for dredging Whangarei Harbour, expected to cost between $30 million and $45 million, to allow heavier loads on tankers bringing crude oil to the refinery.
At today’s annual general meeting, chief executive Sjoerd Post said consent application readiness for dredging sand at the harbour’s mouth is a high bar needing a multitude of studies and extensive community consultation. Already the operator of the country’s only oil refinery has spent around $3.5 million on feasibility studies and that cost is likely to go to $5 million by year’s end.
The multiple parallel studies include the impact of dredging on tidal flows and sedimentation, on marine mammals such as whales and dolphins, the benthic seabed population, and recreational fishing. There are also studies on where to place dredged sands and safe channel design, and possible removal of an existing S-bend in the harbour channel.
The refinery’s customers are currently only able to import 600,000 to 700,000 barrels of crude oil monthly rather than a tanker's full capacity of 1 million barrels because the heavier load risks the tanker hitting the channel bottom. Being able to make fewer, but fully laden trips would save money.
There has been no decision whether to apply under the Resource Management Act or to Environmental Protection Authority for a fast-tracked national interest project. Post said it could take until mid-2018 to "get the shovels out”, for completion in 2019.
Under a new strategy, the meeting heard the board will shift NZ Refining’s capital growth expenditure from “occasional big bullets” to a more even spread over the next few years, in the order of $10 to $50 million a year, he said.
It has spent some $735 million on large capital projects in the past decade, including the $365 million Te Mahi Hou project completed this year to lift petrol production by two million barrels to around 14 million barrels a yearand boost the refinery’s share of the country’s petrol demand from around 55 percent to 65 percent.
NZ Refining’s capital expenditure for this year is expected to be $80 million with the key projects including the dredging, a project with Vector to double the refinery’s natural gas take via the northern pipeline, looking at the feasibility of extra crude tankage, an automatic pilot for the refinery’s CCR (Continuous Catalyst Regeneration) unit, and near infrared spectroscopy as a way to test its blend without having to take samples to a laboratory.
Shareholders voted on reducing the minimum number of board members from 8 to 3, after criticism the refinery board was too large and director numbers will reduce from 10 to 8, with four independents including new chairman Simon Allen. The board also introduced an annual fee increase for the chairman and directors of $10,000 and $8,000 respectively, the first since 2013 and for non-independent directors of $12,000 annually, the first in five years, without needing to increase the directors’ fee pool because of the reduction in numbers.
The refinery returned to paying dividends - 25 cents per share - last year after near doublings its average gross refining margin at US$9.20 a barrel, prior to cap or floor adjustment.
Shareholders questioned what had led to that and whether that was likely to continue this year.
Post said typically low crude oil prices meant low profit margins for the refinery but 2015 was a unique year with a rebalancing in oversupply of refining capacity and a big upsurge in gasoline demand due to the lower prices. A weaker kiwi dollar and high refining margins also contributed to one of its best annual results on record - net profit of $151 million in 2015.
The refinery doesn’t publish a forecast for the 2016 financial year but Post said its two-monthly margins report released in March “wasn’t as good as the market has hoped for which caused downward pressure on the share price”. The shares are currently trading at $2.98, up 27 percent for the year.
The company has just published an explanation of its processing fee which has been subjected to regular reviews since being introduced 20 years ago and allows for a 70/30 split of gross refining margins between the refinery and its major oil company shareholder/customers. The contract also allows for a margin cap and fee floor that means the refining margins can’t go above a certain limit and can’t go below the floor in any calendar year.
The NZ Shareholders’ Association called for the company’s complex arrangement to be shifted from one year to two years to “moderate large swings in profitability” for NZ Refining. The company agreed to consider the proposal in the next review of the processing fee.
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